Sears, Struggling to Promote Items, Markets a Invaluable Asset: Actual Property

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Sears, Struggling to Sell Goods, Markets a Valuable Asset: Real Estate

Buyers are no longer allowed to flock to wrenches, watches or washing machines. But Sears, the once ubiquitous department store battered by the growth of e-commerce, may have one final market value: its own buildings.

Starting about a decade ago – and accelerating in recent months as the owner initiated the equivalent of a property clearance sale – investors have been betting on new uses for vacant Sears stores from Santa Monica, California to southern New Jersey.

Many of the sites, often older, windowless, mall-attached buildings, don't stray far from their original mission: to be remodeled for new retailers.

However, following the trend of converting dusty commercial real estate, some addresses have been given fresh and sometimes unexpected new functions. In more than a dozen locations across the country, developers are installing high-end homes, state-of-the-art classrooms, and even laboratories that are used to develop secret weapon systems.

"Sears seemed to have thrown in the towel a long time ago and is now figuring out how to monetize their real estate," said Joseph F. Coradino, CEO of PREIT, a Philadelphia-based mall owner who has been redesigning for about half a year – Dozen of Sears stores. Most recently, a healthcare facility announced it was building a shell at its Moorestown Mall in New Jersey.

Of course, Sears isn't the only chain struggling with empty aisles. Several major department stores have filed for bankruptcy protection during the pandemic, including Neiman Marcus, JCPenney, and Lord & Taylor, though, like Sears, many of these retailers struggled and closed their locations long before the coronavirus crisis.

For Sears, the transition to new uses is perhaps most pronounced in his hometown of Chicago, where the Sears Tower was the tallest building for decades. But not anymore. Sears moved out a long time ago, and since 2009 the 450-meter-high, black-tinted skyscraper has been called Willis Tower by a British insurance company.

In Chicago, several stores have recently completed or are about to renovate, including one of Sears' oldest homes on East 79th Street and South Kenwood Avenue, which opened in 1928 and sold its last sewing machines in 2013.

After all traces of Sears were wiped away, the buff-colored, almost block-long building reopened last year as a self-storage facility operated by ExtraSpace Storage.

“I remember the cosmetic counter right outside the front door,” says Zeb McLaurin, recalling the trips he and his family took there in the early 1980s. Today, Mr. McLaurin, President of McLaurin Development Partners, co-owns the 140,000-square-foot building he bought in 2018 for $ 900,000. The seller was Seritage Growth Properties, a real estate fund and an offshoot of ESL Investments, which Sears has owned since 2005 and also controls Kmart. Sears filed for bankruptcy in 2018; its assets were acquired a year later by Transformco, another company controlled by ESL. Only a handful of Sears stores remain open.

With the opening of this Chicago store nearly 100 years ago, Sears began a nationwide push to add a brick and mortar component to a thriving mail order business. Care was taken to ensure that the stores look similar but also stand out.

In fact, a tall, campanile-style central tower with arched windows in the East 79th Store resembles one in the North Lawndale neighborhood that once ruled the company's factory and catalog printing facility. This tower, now called the Nichols Tower, was given a new lease of life as a community center and center for nonprofit groups focused on housing and education.

Demolition would not have been economical for Mr. McLaurin. Its location on the South Side of Chicago is not suitable for an expensive new development, at least for the time being, he said.

Updated

12/14/2021, 3:23 p.m. ET

But others have kept stores for architecture because they often find them compelling, as in the Portage Park neighborhood of Chicago, where a once bustling shopping district is a shell of its old self.

Novak Development Company, which bought Seritage's two-block lot for $ 11.5 million last year, plans to preserve the facade of a 1938 Art Deco-style Sear while adding 206 apartments and 50,000 square feet of retail space . The city council gave the project its blessing in autumn; Construction is planned for next summer.

In 2020, Novak bought another Sears property in Chicago from Seritage, a mix of beige brick buildings and parking spaces on a three-block West Side property that cost $ 2.4 million. Novak will build 150 homes and retail space despite the site's Sears store being demolished.

Since the pandemic began, Seritage's share price has plummeted while its longtime CEO has gone. As of September, its portfolio had been reduced to 171 of 266 Sears and Kmart properties, which the company bought for $ 2.7 billion in 2015, according to a company spokesman. Of those properties, 130 were Sears stores.

Even with a trimmer portfolio, Seritage has continued to advance its own Sears new developments, filings, including a residential project in West Covina, California.

The company is also involved in office remodeling, including Mark 302, a 50,000-square-foot project in Santa Monica, California that Seritage has partnered with Invesco, an investment firm. The almost complete remodeling offers a light-flooded atrium and a market on the ground floor, but has also retained much of the original structure from 1947, a designated local landmark. The name of the former resident has been retained on some of the facades.

"These stores were built in fantastic locations, were easy to get to and easy to park," said Jeff Pion, a vice chairman of CBRE, which is marketing potential office space in an enclosed Bloomingdale’s across the street. "Letting has probably been slower than Seritage would like, but that can be said about office leasing in general for the past 21 months."

A fundamental challenge seems to be to adapt buildings that avoid natural light to modern tastes, which was a challenge in 1939 at a concrete Sears in Houston. To brighten up the space owned by Rice University, the designers removed the roof from the three-story building and added two additional window-lined floors. The escalators were also eliminated in the $ 100 million renovation and replaced with classrooms and a 250-seat forum.

“That was by no means a valuable restoration,” says Anneli Rice, architect at Shop. "We used what was useful and took away the rest."

The Ion, as Sears is now called, was partially opened last spring and has Microsoft and Chevron among its office tenants. A craft beer bar will open next year.

Inadequate power and plumbing is a challenge in the former Sears store on Moorestown Mall as it is being converted into an outpatient medical clinic for the Cooper University health network. In the spring of 2020, Cooper bought Transformco's stake in the deal for $ 9 million.

Dating back to 1963, the 23,000-square-foot building originally had four bathrooms. But because it will now house doctor's offices, it will take about 50, said Mr Coradino, the mall's owner, who has also installed four new retailers in an empty Macy & # 39; s and is considering a proposal to repurpose an empty Lord & Taylor. In addition, a hotel and 375 apartments are to be built there on parking lots.

For PREIT, the benefit of adding a health clinic in the mall is that it will attract new buyers. Patients' relatives may have something to do now, you think while they wait.

A similar calculation is taking place in Lawton, Okla: A former Sears in the city's Central Plaza Mall near the Fort Sill Army Base is being converted into a hub for the production of weapons and navigation systems.

During the day, the defense companies will operate using top-secret technology in rooms that were once cave-like but will be divided into smaller rooms with better-guarded doors in the interests of security, said James Taylor, the project's director, FISTA Innovation Park. A dillards with shutters in the mall is similarly reinvented.

But when it's time for lunch, the Defense Forces are expected to head to the food courts and maybe shop along the way, which should benefit the mall's retailers, Taylor said. "We have created a collaborative ecosystem," he added. "And besides, no one else was queuing to occupy these shops."

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